Vodafone International Holdings BV v. Union of India
Author: Gulzar Hashmi • Publish Date:
PRIMARY_KEYWORDS: offshore share sale, India tax jurisdiction, Vodafone case, Section 9(1) | SECONDARY_KEYWORDS: Section 195 TDS, Section 163 agent, Section 2(14) capital asset
Slug: vodafone-international-holdings-bv-v-union-of-india
Quick Summary
Two non-residents made an offshore share sale. Though Indian assets were indirectly involved, the Supreme Court said India cannot tax this deal. Why? The asset sold was shares of a foreign company and the sale happened outside India. So, Sections 9(1) and 195 did not apply on these facts.
Issues
- Can India tax an offshore transaction between two non-residents when the underlying business is in India?
- Is a sale of foreign shares (that indirectly hold Indian assets) taxable in India?
Rules
- Section 9(1) — Income arising, directly or indirectly, from a business connection in India or through transfer of a capital asset situated in India is taxable in India.
- Section 195 — TDS applies only if the payment to a non-resident is chargeable to tax in India.
- Section 163 — When and who may be treated as an agent/representative assessee.
- Section 2(14) — Meaning of capital asset and exclusions (e.g., stock-in-trade, certain personal effects, specified bonds, etc.).
Facts (Timeline)
Arguments
Appellant (Union of India/Revenue)
- Real value was the Indian telecom business; substance over form.
- Income arose indirectly from assets/business in India → Section 9(1) triggered.
- Vodafone should have withheld tax under Section 195.
Respondent (Vodafone)
- Immediate subject was shares of a foreign company, sold offshore.
- No transfer of a capital asset situated in India → Section 9(1) not attracted.
- No tax charge → no TDS duty under Section 195; Section 163 not applicable.
Judgment
The Supreme Court allowed Vodafone’s appeal. The sale did not amount to transfer of a capital asset located in India under Section 2(14). As the payment was not chargeable to tax in India, Section 195 TDS did not apply. Vodafone could not be treated as an agent under Section 163. The demand raised (including the large sum claimed) was set aside.
Ratio
Look at the asset and situs actually transferred. An offshore sale of foreign shares between non-residents is not taxable in India merely because Indian assets lie beneath, unless law expressly deems such indirect transfer taxable.
Why It Matters
- Clarifies limits of Indian tax jurisdiction over offshore deals.
- Shows how withholding duty depends on chargeability in India.
- Foundational for questions on indirect transfers in tax exams and practice.
Key Takeaways
Chargeability first; TDS next.
Foreign share sale ≠ Indian asset transfer.
Section 9(1) needs asset/business nexus in India.
Section 163 agency not lightly inferred.
Mnemonic + 3-Step Hook
Mnemonic: “Offshore? Look What’s Sold.”
- Offshore — Was the deal and payment outside India?
- Look — What is the exact asset sold (foreign shares vs Indian asset)?
- Sold — If foreign shares were sold offshore, India generally cannot tax.
IRAC Outline
Issue
Can India tax an offshore sale of foreign shares between non-residents?
Rule
Section 9(1), 195, 163, and 2(14) — taxability depends on situs of asset and chargeability.
Application
Asset sold = shares of a foreign company; sale occurred outside India.
Conclusion
Not taxable in India; TDS and agency provisions not attracted.
Glossary
- Business Connection
- A link between a non-resident’s business and activities in India leading to taxable income.
- Capital Asset (S.2(14))
- Property of any kind held by an assessee, with listed exclusions.
- Chargeable to Tax
- Income that is taxable under Indian law; triggers TDS under S.195.
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